Financing Infrastructure Properly

The Municipal Utility District infrastructure bond
financing system is employed widely in the United States –
particularly within Texas, Georgia and Florida. The US
Municipal Bond market is currently about $2.5 trillion.

It
is critically important urban researchers and policy
analysts have a sound understanding of the bond financing
Municipal Utility District structures.

The simple
reality is that those who own the infrastructure should be
responsible for the equity and debt financing of it – for
what should be obvious reasons of economic efficiency and
intergenerational equity.

Other public service
providers such as airlines, hotels and taxi services do not
require a “capital charge”, but instead control their
costs sufficiently (unlike Local Governments), so that they
maintain the ability to finance capital and normal growth
requirements from simple service charges.

If they don’t
– they go broke.

Strangling fringe land supply (sold to
a gullible public as “smart growth” - in reality “no
growth”) and imposing irrational and indefensible
Development Charges, is a sure indication that a Local
Authorities costs are out of control and that it is
incapable of coping with normal growth.

But what is
“obvious” to most people with basic common sense and
market sense (refer Housing Bubbles And Market Sense), is
not “obvious” to those involved with the Local
Government sectors of both Australia and New Zealand, due to
the extremely poor quality governance, training and policy
development standards.

Because of the currently poor
governance standards, Local Governments in both New Zealand
and Australia, are essentially run by those employed within
them to suit themselves.

Senior managements simply
administer them and elected representatives (with mostly
little knowledge of what’s going on) before long become
“parrots” for the desires of the employees. The Audit
Offices of both countries (again due to poor governance
standards) simply “rubber stamp” whatever Local
Government generates. It is, for example, unheard of for the
Audit Offices to “tag” financial statements generated by
Local Authorities.

Local Authorities and particularly the
larger ones, understandably become “bureaucratic
nightmares” as Parkinson’s Law is allowed to take
root, requiring ever increasing and insatiable financing
requirements.

Understandably with these “hillbilly
standards”, urban developers are seen as a “soft
target” to extort money and the seriously irrational and
destructive “Development Charges” are put in place, to
assist in meeting the ever increasing financing needs of
these out of control bureaucracies. The developers are of
course only the intermediaries and it is the new home buyer
who pay, with financing costs, subdivider and builder
margins thrown in for good measure.

What may on the face
of it be a $10,000 Development Charge can in the final wash
become in reality a $20,000 Home Buyer Charge – a $50,000
Development Charge a $100,000 Home Buyer Charge. And
that’s before the excessive new home buyers mortgage costs
are factored in.

Compounding the problem is Local
Authorities strangling fringe land supply, so that raw
fringe land prices are artificially “cranked up” from
their true rural values of just a few thousand dollars per
hectare (in the case of Australia) or say $15,000 to $30,000
(in the case of New Zealand with more intensive agriculture)
to $1,000,000, $2,000,000 per hectare or more.

Little
wonder then, that on the fringes of Houston for example,
serviced lots for new fringe starter housing cost around
$US30,000,with completed 235 square metre starter homes on
500 to 700 square metre lots for $US140,000, as explained
within a recent article “Houston, we have a (housing
affordability) problem”.

This disruption of the
residential development / construction industry in turn
increases the risks, creates unnecessary housing bubbles and
degrades pricing performance. New Zealanders for example
currently pay about twice the cost per square metre for
construction they should. This environment of poor quality
governance in New Zealand triggered the leaky homes fiasco
and the meltdown of the finance sector.

Indeed the
situation in the major metros of Australia and New Zealand
is currently so ridiculous, that on an income basis, a
Houstonian could expect to buy two completed fringe starter
house and land packages, for the same price Australians and
New Zealanders pay for a single fringe lot!

To assist in
encouraging quality discussion of the Municipal Utility
District bond financing model in the United States, the
following hyperlinks are provided -

The New Zealand Urban Technical
Advisory Group is to report back to the Minister for the
Environment end of June – two weeks from now.

This
important Report is expected to be released during July with
accompanying Statements by the five Ministers - Environment,
Local Government, Infrastructure, Housing and Building. No
doubt these Statements will incorporate new institutional
arrangements, so that Central Government can embark on a
sorely needed performance relationship with the Local
Authorities in New Zealand.

It is past time too, the
Planning Departments of Local Authorities within Australia
and New Zealand researched the United States infrastructure
bond financing model’s. The days of “playtime
planning” underpinned by “sun rises in the west” research are
over.

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